Oil rig count

Last week, the oil rig count rose by three to 800—near the lowest level since March 30, 2018. The rig count tends to follow US crude oil prices with a three to six-month lag.

Has the Oil Rig Count Bottomed Out?

In February 2016, US crude oil prices fell to the lowest closing level in 12 years. Between February 11, 2016, and June 3, 2019, US crude oil active futures rose 103.2%. The oil rig count reached a six-and-a-half-year low of 316 in May 2016. Between May 27, 2016, and May 31, 2019, the oil rig count rose ~153.2%. Between May 27, 2016, and May 24, 2018, US crude oil production rose ~40.8%.

Has oil rig count bottomed out?

On December 24, US crude oil active futures settled at $42.53 per barrel—the lowest closing level since August 10, 2016. Based on the pattern we saw above, the oil rig count could keep falling until at least June. In the week ending May 24, the oil rig count was at the lowest level since March 30, 2018. In the current quarter, the US crude oil production might rise. Since mid-February, US crude oil weekly production has fluctuated between 12.1 MMbpd (million barrels per day) and 12.3 MMbpd.

Oilfield services stocks

Since the US oil rig count hit a multiyear high of 888 on November 16, the VanEck Vectors Oil Services ETF (OIH) has fallen 30.6%. Schlumberger (SLB), Halliburton (HAL), and Transocean (RIG) have fallen 26.4%, 33.5%, and 35.3%, respectively. OIH has 44% exposure to these stocks. Any slowdown in US oil drilling activities could be a concern for these stocks. Between November 16, 2018, and May 31, 2019, the oil rig count fell ~10%. If the oil rig count recovers, it might benefit these oilfield services stocks.

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